Thank You

Error.

Activist investor Carl Icahn has been garnering headlines since his hostile takeover of TWA in 1985, and at 77, he's still making news. This year alone, he has battled Michael Dell for control of computer maker Dell, butted heads with fellow activist Bill Ackman over multilevel marketer Herbalife, and pressed rig-operator Transocean to pay a bigger dividend to investors. Icahn's successful, sharp-elbowed investment style has helped make him one of the world's wealthiest men.

Icahn's $6 billion hedge fund, Icahn Capital, returned outside money to its investors in 2011, but you can still get in on the action through Icahn Enterprises, a publicly traded master limited partnership.

The $6 billion MLP has a concentrated portfolio of about 10 holdings. At $55, the units (as shares of an MLP are known) trade at a discount to the $64 sum-of-the-parts value, based on the company's analysis, which has been updated by Barron's based on the current share price of key publicly traded investments. The units yield a hefty 7%, reflecting a recently initiated $4-a-share annual payout.

Icahn Enterprisesiep -1.3749862501374985%Icahn Enterprises L.P.U.S.: NasdaqUSD89.66
-1.25-1.3749862501374985%
/Date(1427835600290-0500)/
Volume (Delayed 15m)
:
115435AFTER HOURSUSD89.66
%
Volume (Delayed 15m)
:
98
P/E Ratio
N/AMarket Cap
11191293892.2839
Dividend Yield
6.691947356680794% Rev. per Employee
439136More quote details and news »iepinYour ValueYour ChangeShort position
(ticker: IEP) has proved a very attractive investment over the years, returning an average of nearly 20% annually over the past decade. Since we wrote favorably about the company a year ago, the stock is up 26.2% ("Still a Master of the Game," April 9, 2012), compared with 11.6% for the Standard & Poor's 500.

Carl Icahn has been making headlines since the 80s and his sharp-elbowed style has helped net Icahn Enterprises 20% annual gains for a decade. Andrew Bary reports. Photo: Getty Images.

Icahn Enterprises has sought to broaden ownership with a recent $200 million equity offering and an increased dividend. It also recently began publishing an asset value estimate, which makes it easier to understand. Still, the stock probably is better suited to individuals than institutions thanks to limited liquidity. Icahn, who works for a bargain salary of $1 a year, owns 89% of the company.

Brooklyn Tough

There are many companies that are undervalued and badly managed, says Icahn. There's great profit in controlling them or making changes.

Icahn Enterprises (IEP) Asset/Ticker

Stake

Value* (mil)

CVR Energy/CVI

82.0%

$3,631

CVR Refining/CVRR

3.0

128

Federal-Mogul/FDML

77.6

460

American Railcar/ARII

55.6

523

Hedge-Fund stake

2,671

Tropicana/TPCA

67.9

488

Viskase/VKSC

70.8

268

Real estate

100.0

763

PSC Metals

100.0

338

WestPoint Home

100.0

256

Other Assets

63

Cash

1,537

Total Value of Assets**

11,126

Less Debt

4,082

Net Asset Value**

7,044

Net Asset Valueper unit**

$64

Recent Price of units

$55

*Based on recent equity values. **Estimated Source: Company reports

"There are many companies that are undervalued and badly managed. There's great profit in controlling them or making changes," Icahn told Barron's. "Icahn Enterprises is uniquely positioned to do that because we have permanent capital. We're able to take advantage of opportunities in undervalued companies that others can't do."

ICAHN'S BRASH ATTITUDE and financial acumen have made him one the country's most powerful—and richest and busiest—investors. Bloomberg estimates Icahn's net worth at $18.6 billion, ranking him 38th on its list of the world's wealthiest.

Indeed, last month, he pledged $4 billion of his own money and that of Icahn Enterprises in a counterbid to Michael Dell's buyout offer for his namesake company. Icahn retains a tough-guy persona reflecting his Brooklyn roots and isn't afraid to attack opponents. He went after his
Herbalifehlf 0.09363295880149813%Herbalife Ltd.U.S.: NYSEUSD42.76
0.040.09363295880149813%
/Date(1427835700103-0500)/
Volume (Delayed 15m)
:
1280575AFTER HOURSUSD42.76
%
Volume (Delayed 15m)
:
P/E Ratio
11.977591036414566Market Cap
3935665505.52612
Dividend Yield
2.8063610851262863% Rev. per Employee
635718More quote details and news »hlfinYour ValueYour ChangeShort position
(HLF) adversary, investor Bill Ackman, calling him a "liar" and "crybaby in a schoolyard" in a CNBC interview. Ackman is short the stock.

THERE'S SUCCESSION RISK with Icahn Enterprises because it's unclear who—if anyone—will follow him, and what will happen to the company when Icahn retires and, ultimately, when he dies. (The billionaire has no plans to retire.) It's possible that control may pass to his son Brett, 33, who is running as much as $3 billion for the Icahn hedge fund and has racked up a strong record.

Brett Icahn and his investment partner David Schechter are behind a recent Icahn coup, an investment in Netflix, which is the second-biggest winner in the S&P 500 this year with an 80% gain. Icahn Enterprises has a profit of more than $500 million on its investment, now worth more than $900 million.

The net-asset-value calculation employed by the MLP is based on the market values of its largest and most liquid investments, including CVR. However, Icahn Enterprises bases its valuation of Tropicana and Viskase, both thinly traded, on its own estimate of their value, which is higher than their market value. A value of $488 million, or eight times 2012 cash flow, is assigned to the stake in Tropicana. That's $200 million more than the market value of the MLP's interest in the casino operator, which owns properties in Atlantic City and certain regional markets.

If the MLP's calculations are right, shares of both Tropicana and Viskase, a packaging company, are undervalued. Tropicana is potentially worth more than $25 a share, compared with its recent price of $16.

The Bottom Line

At $55, Icahn Enterprises looks undervalued—and it could be worth $64 or more. With a 7% dividend yield, it gives investors a lucrative way to wait around for Icahn's next move.

Some investments may be carried at conservative levels. Icahn Enterprises, for instance, paid $150 million in 2010 for the unfinished Las Vegas casino, the Fontainebleau; the property now could be worth $300 million or more. CVR Energy also could be worth more if the company sold more shares in the MLP for its refining assets, CVR Refining.

At a time when many investors are placing money with high-fee hedge funds and getting mediocre returns, there's a nice alternative in Icahn Enterprises, which trades at a discount to its net asset value. The company has a great record and a proven money maker at the helm who works for just $1 a year.